Good CDs Brian Is a Systems Manager for a Large

question 582

Essay

Good CDs Brian is a systems manager for a large company. In his work, he has found that
about 5% of all CDs he orders are bad. He needs to give one of the executives at his
company five good CDs. Conduct a simulation to estimate how many CDs Brian will have
to check to get five good CDs for the executive.
a. Describe how you will use a random number table to conduct this simulation.
b. Show three trials by clearly labeling the random number table given below. Specify the
outcome for each trial. $$\begin{array} { | c | c | c | } \hline \text { Trial } & \text { Simulation } & \text { Outcome } \\\hline \# 1 & 03242506921897728370 & \\\hline \# 2 & 78695214028552581183 & \\\hline \# 3 & 60809067653999681915 & \\\hline\end{array}$$
c. State your conclusion.

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Definitions:

Operating Leverage

An indicator of the extent to which increases in revenue lead to increases in operating profit, showing the level of fixed expenses within the financial framework of a business.

Fixed Costs

Expenses that do not change with the level of production or sales over a short period, such as rent, salaries, and insurance.

Forecasting Risk

The potential for future revenues or earnings to deviate from projected amounts due to variables that affect demand, supply, and pricing.

NPV Estimates

Calculations used to determine the Net Present Value of an investment, forecasting the difference between the present value of cash inflows and outflows.